The Origins of State Capacity: Property Rights, Taxation, and Politics

Timothy Besley () and Torsten Persson ()

No 6370, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the developing world of today. This paper develops a framework where "policy choices", regulation of markets and tax rates, are constrained by "economic institutions", which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political determinants of these investments. The analysis shows that common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Preliminary empirical evidence based on cross-country data find a number of correlations consistent with the theory.

Keywords: development; property rights; state capacity (search for similar items in EconPapers)
JEL-codes: D70 E60 H10 K40 O10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-law, nep-pbe, nep-pol and nep-reg
Date: Written
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Related works:
Working Paper: The Origins of State Capacity: Property Rights, Taxation, and Politics (2007)
Journal Article: The Origins of State Capacity: Property Rights, Taxation, and Politics (2009)
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